Court: District Court, E.D. Virginia; November 20, 2017; Federal District Court
In March 2013, Harald McPike, an Austrian adventurer, contracted with Space Adventures, Ltd. (SA) for a $150,000,000 spaceflight around the moon and to the International Space Station, involving collaboration with the Russian space agency, Roscosmos. McPike paid a $7,000,000 installment toward a non-refundable $30,000,000 deposit but later sought to terminate the agreement and refund his deposit, claiming SA lacked the capacity to fulfill the contract. SA refused the refund, prompting McPike to file a lawsuit with five claims: breach of contract, fraud in the inducement, violations of the Virginia Consumer Protection Act, conversion, and unjust enrichment. SA, based in Virginia and run by President Thomas Shelley and CEO Eric Anderson, contested the claims, leading to the current legal proceedings. Prior to the contract, McPike expressed interest in a circumlunar mission and engaged in discussions with SA, including signing a non-disclosure agreement and submitting a medical questionnaire. The formal contract was executed on March 20, 2013, following representations from SA about its exclusive arrangement with Roscosmos and the timeline for the mission. Key provisions of the contract affirm SA's rights to provide the space flight, having secured necessary approvals from relevant Russian authorities.
In Article 3, Section 3.09, SA affirms it owns the rights to provide circumlunar space flights. Article 5, Section 5.02 details a payment schedule requiring McPike to make payments at specific stages, while Section 5.03 states that payments towards the Space Flight Experience Price are non-refundable except as noted in Article 7. Article 6 outlines confidentiality, non-disclosure, and non-competition stipulations. Article 7, Section 7.02.01 allows SA to terminate the Agreement for non-payment, retaining all prior payments as liquidated damages. Section 7.03.01 permits McPike to terminate the Agreement, but he would forfeit the $7,000,000 deposit. Section 7.03.02 specifies that if the circumlunar mission has not started by 2020, McPike's deposit would be kept, but other payments would be refunded. Article 8 establishes that Virginia law governs the Agreement and any disputes must be resolved in Virginia courts.
On March 28, 2013, McPike paid the initial $7,000,000 deposit and took multiple preparatory actions for the mission until spring 2014, when he raised concerns about the payment schedule and proposed escrow arrangements, which SA refused. SA granted an extension of three months for McPike's next payment, but he failed to pay the $8,000,000 installment due by July 2014, continuing instead to seek modifications. After discovering a report questioning SA's relationship with Roscosmos, McPike sought clarifications but received assurances that the article was incorrect. Nonetheless, he made no further inquiries or payments. SA terminated the Agreement on March 24, 2015, due to McPike's non-payment, retaining the $7,000,000 deposit. In May 2016, McPike contacted Roscosmos about an alternative mission, leading to a response indicating that while SA had conducted flights, there were no valid agreements binding Roscosmos to SA.
On December 26, 2016, Roscosmos informed the plaintiff that it could not disclose details about its relationship with Space Adventures (SA) due to confidentiality. Moreover, it stated that no Russian Federal Space Programs included manned missions to the Moon. Subsequently, the plaintiff filed a five-count complaint against SA on May 17, 2017, alleging: (i) fraudulent inducement by SA regarding its relationship with Roscosmos, (ii) violation of Virginia's Consumer Protection Act through fraud, (iii) breach of contract for not having a relationship with Roscosmos, (iv) tortious conversion of a $7,000,000 deposit, and (v) unjust enrichment for retaining the deposit without providing the promised spaceflight.
Defendants moved to dismiss, claiming that (i) the fraud, conversion, and unjust enrichment claims are time-barred, (ii) the conversion and unjust enrichment claims fail because the express contract governs the deposit, and (iii) the breach of contract claim lacks factual support linking the alleged breach to damages. The court found that the conversion claim is time-barred and the unjust enrichment claim fails; however, the fraud claims and breach of contract claim survived the motion to dismiss.
The defendants argued that the fraud claims are time-barred under Virginia's two-year statute of limitations, asserting that the plaintiff discovered the fraud in July 2014 when he read a Moscow Times article indicating no contract between SA and Roscosmos. The plaintiff contended that he was reassured by SA that the article was incorrect, which led him to refrain from further investigation until he received a letter from Roscosmos on July 25, 2016, clarifying the absence of a contractual relationship. The defendants countered that a reasonable person in the plaintiff's position would have investigated further after investing $7,000,000.
Plaintiff asserts that the confidentiality and non-compete clauses of the Agreement prevented him from contacting Roscosmos. However, this does not explain why he did not reach out to Roscosmos from March 24, 2015, when the Agreement was terminated, until May 2016, when he first made contact. The defendants' motion to dismiss based on the statute of limitations hinges on when the plaintiff discovered, or should have discovered, the alleged fraud by SA. This determination is fact-specific and typically reserved for a jury, although it can be resolved at the motion to dismiss stage if the necessary facts are clear from the complaint. In this case, the plaintiff's allegations allow for differing interpretations by reasonable jurors regarding the timing of his discovery of the fraud, so the motion to dismiss on these grounds is denied and will be addressed at a later stage.
Additionally, the plaintiff's conversion claim is contested by the defendants, who argue it is time-barred. The key dispute is over which statute of limitations applies: the two-year limit for fraud or the five-year limit for property injury. Defendants contend that the conversion claim is essentially a fraud claim related to property loss, thus subject to the two-year statute under Va. Code 8.01-243(A). They reference case law indicating that the two-year statute applies when fraud affects the plaintiff personally, with any property loss being secondary. Since the plaintiff's alleged property loss stemmed from the defendants' fraudulent actions, the two-year statute is deemed applicable. The plaintiff's situation is distinguished from Bader v. Central Fidelity Bank, where the five-year statute applied due to direct wrongful possession of funds by the bank.
The bank's misconduct did not target Mrs. Bader personally, but involved the mishandling of her funds. In contrast, SA's alleged fraud directly affected the plaintiff, resulting in a loss of a $7,000,000 deposit. Consequently, Virginia's two-year statute of limitations for personal injury claims applies, rendering the plaintiff's claim time-barred. The discovery rule is not applicable to his conversion claim, as there is no Virginia authority supporting its use in such cases, and most jurisdictions have ruled against it. Therefore, the conversion claim is also time-barred and subject to dismissal.
Regarding the unjust enrichment claim, the plaintiff argues that SA wrongfully retained his $7,000,000 deposit. Defendants challenge this claim based on timeliness and legal sufficiency. A three-year statute of limitations applies, beginning when the plaintiff made the deposit in March 2013, which means the claim filed in May 2017 is untimely by approximately fourteen months, unless it can be equitably tolled. However, there is no clear authority for tolling this statute under Virginia law, and even assuming it could be tolled, the claim fails as the plaintiff does not contest the validity of the underlying contract. Virginia law prohibits recovering on both contract and quasi-contract theories simultaneously when the validity of the contract is not in dispute, necessitating dismissal of the unjust enrichment claim.
Lastly, the sufficiency of the plaintiff's breach of contract claim is questioned by SA, which argues that even if there was a breach concerning a formal relationship with Roscosmos, it was immaterial as the plaintiff had already ceased his obligations under the Agreement by stopping deposit payments in 2014. SA asserts that the plaintiff's own "preemptive" breach occurred prior to his awareness of SA's breach, weakening the causation argument.
Plaintiff claims he stopped making payments in 2014 due to concerns about Space Adventures' (SA) ability to fulfill the contract, specifically citing breaches of Articles 1 and 3 of the Agreement. SA contests the assertion that its breach nullified the contract’s essential purpose, maintaining that it could still provide the promised service despite lacking a formal relationship with Roscosmos. The determination of whether a breach is material is a factual matter, inappropriate for resolution at this stage, and should be assessed by a jury. The court finds that the plaintiff has presented adequate facts to move forward with discovery on his breach of contract claim, leading to a denial of SA's motion to dismiss this claim. However, the plaintiff's conversion claim is dismissed as time-barred, and the unjust enrichment claim is denied as legally insufficient. Two fraud claims and the breach of contract claim are allowed to proceed. The court notes that SA, which later changed its name to Zero-Gravity Holding, Inc., required the plaintiff to make three installment payments totaling $30 million as a non-refundable deposit. The case incorporates a Moscow Times article relevant to the fraud and breach of contract claims, indicating that Roscosmos was not involved in a proposed moon mission by SA, which is critical to the plaintiff's allegations. The court can consider public records and documents integral to the complaint when reviewing motions to dismiss.
Contractual choice-of-law provisions in Virginia are decisive for determining the applicable substantive law. In this case, Article 8, Section 8.09 of the Agreement explicitly states that it shall be governed by Virginia law. Consequently, Virginia law applies to the parties involved. In federal diversity actions, state law governs the existence and interpretation of statutes of limitation. Specifically, actions for damages due to fraud must be initiated within two years of the cause of action accruing, as per Va. Code 8.01-243 and Va. Code 59.1-204.1. The cause of action accrues when fraud is discovered or should have been discovered through due diligence, as defined in Va. Code 8.01-249(1). The standard for due diligence is based on what a reasonable person would exercise in similar circumstances. Case law indicates that disputes regarding when an injury occurred, and thus when a right of action accrued, are matters for a jury to resolve. Additionally, the statute of limitations defense must be evident from the complaint's face for a court to dismiss claims as time-barred at the motion to dismiss stage.
To establish a claim for conversion in Virginia, a plaintiff must demonstrate: 1) wrongful assumption or exercise of ownership rights over another's goods, 2) that these goods belong to someone else, and 3) that the defendant's actions are inconsistent with the owner's rights. A plaintiff may also pursue a conversion claim if a defendant unlawfully takes property after a contract's expiration. For unjust enrichment claims, the plaintiff must show: 1) a benefit conferred to the defendant, 2) the defendant's awareness of the benefit, and 3) circumstances making it inequitable for the defendant to retain the benefit without compensation. To seek equitable tolling of a statute of limitations, the plaintiff must provide clear evidence of: 1) a materially false representation or concealment, 2) knowledge of the fact by the representer, 3) ignorance of the truth by the other party, 4) intent for the other party to act upon the representation, 5) inducement to act, and 6) injury resulting from being misled. Defendants cannot recover under both contract and equity simultaneously, although they can plead both theories as alternatives when the contract's applicability is disputed. A breach of contract claim requires proof of: 1) a legally enforceable obligation, 2) breach of that obligation, and 3) resulting injury to the plaintiff. The Agreement indicated that SA warranted its rights to provide a circumlunar space flight, obtained from the official operator and the Russian Federal Space Agency. Despite labeling Count 1 as "Breach of Contract," the plaintiff argued it was a breach of express warranty claim, which under Virginia law does not require proof of causation. However, since the plaintiff did not plead an express warranty claim in his initial complaint, he cannot amend it through new arguments made in response to a motion to dismiss.
